IEA Says OPEC Deadlock Bad News for Producers, Consumers and Energy Transitions

LONDON – The International Energy Agency warned on Tuesday that global oil markets are likely to remain volatile following a breakdown in talks between OPEC members and their non-OPEC allies, creating a dead end situation.

In its latest monthly report on the oil market, the IEA said energy market players were closely monitoring the prospect of a widening supply gap if a deal was not reached by the Organization. of the oil-exporting countries and its oil-producing allies, a group known as OPEC +. .

“Oil markets are likely to remain volatile until OPEC + production policy is clear. And volatility does not help ensure orderly and secure energy transitions – and it is not in the interests of producers. or consumers, ”the IEA said.

OPEC + last week abandoned talks that would have boosted the oil supply. Most delegates tentatively agreed to increase oil production by about 400,000 barrels per day in monthly installments from August until remaining supply cuts are lifted. That was likely to extend supply cuts until the end of 2022.

The UAE has rejected these plans, however, insisting on a higher baseline from which reductions are calculated to better reflect its increased capacity.

This means that no agreement has been reached on a possible increase in crude production beyond the end of July, leaving oil markets in limbo just as global fuel demand recovers from the current crisis. coronaviruses.

OPEC +, which is dominated by Middle Eastern crude producers, agreed to implement massive crude production cuts last year in a bid to support oil prices when the coronavirus pandemic hit. coincided with a historic shock in fuel demand.

The energy alliance has since met monthly to try to decide on the next phase of production policy.

OPEC + has not made progress in resolving the dispute between OPEC’s hub Saudi Arabia and the United Arab Emirates, Reuters reported on Tuesday, citing anonymous OPEC + sources. This makes the prospect of another political meeting this week less likely.

The IEA said it expects global oil demand to increase by 5.4 million barrels per day this year and an additional 3 million barrels in 2022, largely unchanged from the forecast. last month.

Meanwhile, the “remote” possibility of a market share battle between producers hangs over energy markets, the IEA said, warning that rising fuel prices and rising fuel prices inflation could harm a fragile economic recovery.

Uncertainty over the potential global impact of the highly transmissible delta variant of Covid-19 is also expected to temper market sentiment in the coming months, the group said.

International benchmark Brent crude futures traded at $ 75.57 per barrel on Tuesday morning, up 0.5% for the session, while US West Texas Intermediate futures were $ 74.51, about 0.6% higher.

Oil prices rose more than 45% in the first half of the year, supported by the deployment of Covid vaccines, a gradual easing of containment measures and record cuts in OPEC + production.

“While prices at these levels could increase the pace of electrification of the transport sector and help accelerate energy transitions, they could also slow down economic recovery, especially in emerging and developing countries,” the IEA said. .

These energy transitions refer to the necessary shift from the use of fossil fuels to low-carbon alternatives in order to avoid the worst effects of the climate emergency.

In a flagship report released in May, the IEA highlighted how the energy sector “holds the key” to the global climate challenge. He said for the sector to fully decarbonize by 2050, a massive acceleration towards renewables, electric vehicles and energy-efficient building renovations would have to coincide with a “sharp drop” in fossil fuel use. .